The Psychology of Marketing

1. The Psychology of Marketing How to Exploit Cognitive Biases for Fun and Profit, or Defend Yourself From the Same

2. Why is Marketing a Great Way to Learn Psychology? • Direct feedback: make money when you’re right, lose money when you’re wrong. • Well researched: billions of dollars go into Marketing each year • Plenty of data. Businesses routinely conduct experiments with sample sizes in the tens of thousands, compared to Academic experiments with sample sizes in the hundreds

3. Three Key Biases • Cognitive Ease • Anchoring • Distinction Bias

4. Three Key Biases • Cognitive Ease • Anchoring • Distinction Bias

5. How do we judge truth? • “The moon is made of green cheese” • “The earth revolves around the sun” • “The body temperature of a chicken is 144 degrees”

6. Cognitive Ease • On a 5-second level, humans are more likely to judge a statement as true if it’s easy to process • Unsurprising example: if you repeatedly hear the phrase “the body temperature of a chicken is 144 degrees”, you are more likely to judge it as true

7. Cognitive Ease Part 2 • Surprising example: even if you only hear the phrase “the body temperature of a chicken” several times, you are more likely to judge “the body temperature of a chicken is 144 degrees” as true. This applies for any arbitrary number.

8. Marketing Applications • Ads work by making a brand more familiar • E-mail campaigns and blogs aim for regular contact over a period of weeks • “Write how your audience talks” is the cardinal rule of copy writing • AdSense links that are the same color as the referring page have 20% higher conversion

9. Three Key Biases • Cognitive Ease • Anchoring • Distinction Bias

10. Anchoring • Experiment 1: participants were asked to write down the last 2 digits of their social security number, then bid on different items. Participants with high social security numbers bid on average 60%-120% more • Experiment 2: experienced judges proposed longer sentences if they’d just rolled a pair of dice loaded to give a high number

11. Anchoring 2 • When we hear a number and then estimate another, the first number influences our estimates of the second-even when we know the two are completely unrelated

12. Marketing Applications • Pricing a product at $500 and offering a 50% discount is much more effective than pricing it at $250 from the beginning • When offering multiple options, show the most expensive one first

13. Three Key Biases • Cognitive Ease • Anchoring • Distinction Bias

14. Distinction Bias • “Which dessert do you want?” vs. “Would you like dessert?” • When presented with multiple choices, people tend to significantly overvalue the differences between the choices. Two high-quality TVs may offer a nearly identical experience, but some people will pay twice as much for the slightly better TV

15. Ignoring Alternatives • In particular, distinction bias causes people only to focus on the choices explicitly presented to them

16. Marketing Application • Offer 2-4 options!

17. Case Study: Server Density • Old pricing page: http://web.archive.org/web/20120211140714/http://www.serverdensity.com/pricing/ • New pricing page: http://www.serverdensity.com/pricing/ • Compare on all 3 points: Cognitive Ease, Anchoring, Distinction Bias

18. Results • >109% increase in revenue

19. Defense Against the Dark Arts • Willpower isn’t enough-even professionals who are aware of anchoring and trying to account for it have almost no resistance • To succeed, add at least one alternative beyond what’s presented to you, and compare the alternatives

20. References • Thinking, Fast and Slow by Daniel Kahneman • Influence by Robert Cialdini • The Copywriter’s Handbook by Bob Bly • Google AdSense Secrets by Joel Comm • Decisive by Chip Heath and Dan Heath • McGlone, M. S.; J. Tofighbakhsh (2000). "Birds of a feather flock conjointly: rhyme as reason in aphorisms.". Psychological Science 11 (5): 424–428